When the SBA issued its final rule implementing the Runway Extension Act’s 5-year receipts calculation period earlier this month, it allowed for a two-year transition: until January 6, 2022, the SBA will allow businesses to choose either a 3-year or a 5-year receipts calculation period.
This transition phase is helpful, the SBA noted, to small businesses that might be adversely affected by an abrupt change to the receipts calculation period—namely, businesses with declining revenues over the preceding five years that are nonetheless close to the applicable size standard cap.
SBA’s accommodation of these companies is, by any measure, a commonsense solution to prevent inadvertent harm caused by the Runway Extension Act. But notwithstanding this laudable policy objective, is the new transition period legal?
At SmallGovCon, we’ve closely followed the SBA’s
implementation of the Small Business Runway Extension Act. After much confusion
caused by the delayed implementation of the Act, there’s finally a light at the
end of the tunnel: the 5-year receipts calculation period will become effective
January 6, 2020.
Importantly, the SBA’s final rule implements relief for businesses that will be adversely affected by the change to a 5-year receipts calculation period.
Let’s take a look.
Since being passed by Congress in late 2018, the Runway Extension Act has been the source of great confusion among small business contractors: would size under receipts-based NAICS codes be calculated under the 3-year calculation period set out in the SBA’s regulations, or under the new 5-year calculation period mandated by Congress?
In a decision just publicly released, the SBA Office of Hearings and Appeals has weighed in. As of now, the SBA will still calculate size under the 3-year calculation period.
The Runway Extension Act has been a hot topic for federal
government contractors. And as of this writing, the issue of the Act’s
effectiveness hasn’t been conclusively decided—though SBA says the Act isn’t
yet effective, others (including us, in various posts on this blog) have
disagreed with this analysis. A recent GAO decision decided a protest based on
the Runway Extension Act.
On Monday, June 24, SBA will issue its long-awaited proposed rule implementing the Small Business Runway Extension Act. We intend to explore the proposed rule and the accompanying commentary more fully over the next few days (as we have been doing over the past few months), but we wanted to provide a quick update to our readers on the main changes in the proposed rule.
The key takeaway is that, once the rule is in place, SBA size standards will be based on a 5-year average. SBA “proposes to change its regulations on the calculation of annual average receipts for all receipts-based SBA size standards and other agencies’ proposed size standards for service-industry firms from a 3-year averaging period to a 5-year averaging period.”
Congress and the SBA continue to disagree about the timing for the implementation of the Runway Extension Act (conveniently allowing my Star Wars references to continue).
SBA recently provided testimony before the U.S. Senate Committee on Small Business & Entrepreneurship. Senator Marco Rubio called the hearing to address, among other things, why the “SBA has refused to follow the Runway Extension Act.” (We have wondered the same thing.)